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Czech Growth Lower than Expectations

In mid August, statistics released in the Czech Republic showed annualized 2nd quarter growth of 2.7%, slightly below expectations.

This was despite the chief trading partner Germany’s recent contraction that could spill over into a second quarter, and with it, a technical recession in Europe’s biggest economy. The German government does not appear to be overly concerned, however that did not stop The ECB moving interest rates last week to a record low of 0.05%.

In Prague, people are beginning to show dissatisfaction as some indicators are now indicating that neighboring, and once attached Slovakia, are moving ahead of Czech on some measures. After the fall of Czechoslovakia in 1993, living standards were as much as a third below its neighbor and this future development would have seemed unfathomable. Also, there was a perception of Slovakia’s left wing government not being economically capable, compared to Czechs free market administration.

Political instability in recent years has been blamed, Czech have been swapping prime ministers for fun. In contrast, Slovakia’s steady government and (some say) commitment to the Euro have been heralded as the Slovakian recipe for success back in the Czech Republic.

Regarding the Euro, previous polls suggested 75% of Czechs were against its introduction, but there is evidence to show this is beginning to change. People are recognizing the EU represents 80% of their export market and business leaders are consistently calling for its implementation in order to counter exchange rate fluctuations and currency transfer costs. Regardless, Euro implementation will be some years away even though The Maastricht Treaty suggests they probably should already have it.

For now it seems, the Czech economy will trundle along its mediocre growth path, whilst its people look over at its increasingly wealthy neighbor’s border for direction and inspiration.

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